2018 (2) TMI 1637 - AT - Income Tax

Disallowance of export commission - assessee has failed to substantiate its claim that the services were rendered by the commission agent Mrs. Marjan V. Modaress. Who was the wife of the Importer - business expediency of payment of commission - CIT-A deleted the addition - Held that - Though principle of res-judicata does not strictly apply on Income Tax proceedings, yet principle of consistency demands that if any expenditure is allowed in the preceding and the succeeding assessment years on same set of facts, the expenditure cannot be disallowed for the intervening period. A perusal of comparative analysis of export turnover in the past two assessment years show that after appointment of commission agent, the export turnover of the assessee in terms of volume and Revenue has substantially increased. Thus, the benefit of appointment of commission agent to the assessee is apparent from the records itself. It is prerogative of the assessee to decide, whether to appoint a commission agent or not and the manner in which business is to be conducted. It is a well settled law that the Assessing Officer cannot step into the shoes of assessee and decide business expediency of expenditure. - Decided in favour of assessee

Summary

Issues:
Disallowed export commission payment under scrutiny, Appeal by Revenue against CIT(A) order, Grounds of appeal raised by Revenue, Business expediency of commission payment, Consistency in allowing expenditure, Existence of overseas commission agent, Comparison with previous assessment years, Legal precedents cited by both parties.

Analysis:

The case involved a private limited company engaged in manufacturing and sale of polypropylene mats. The Assessing Officer disallowed the claim of export commission payment made by the company to a commission agent, considering it a sham arrangement to reduce tax liability. The Commissioner of Income Tax (Appeals) allowed the company's appeal, leading to the Revenue's appeal before the Tribunal.

The Revenue raised several grounds of appeal, questioning the genuineness of the services rendered by the commission agent, the classification of the payment as commission rather than a discount, consistency in treatment across assessment years, discrepancies in commission payments, and the need to restore the Assessing Officer's order.

The Revenue argued that the agreement with the commission agent was a colorable device to avoid tax, citing specific clauses and the relationship between the agent and the company's partners. The Revenue relied on legal precedents to support its position.

The company, represented by its counsel, defended the Commissioner's decision, emphasizing the substantial increase in export sales after engaging the commission agent. The company highlighted the comparative analysis of export turnover and the consistency in treatment across assessment years.

After hearing both parties and reviewing the facts and legal arguments, the Tribunal upheld the Commissioner's decision. The Tribunal emphasized the principle of consistency in allowing expenditures, the business prerogative of the company in choosing to engage a commission agent, and the substantial increase in export turnover as a result of the agent's services.

The Tribunal distinguished the legal precedents cited by the Revenue, noting the differences in facts between those cases and the current situation. Ultimately, the Tribunal found no merit in the Revenue's appeal and dismissed it, upholding the Commissioner's order.

In conclusion, the Tribunal's decision favored the company, emphasizing the importance of business decisions, the increase in export sales due to the commission agent's services, and the lack of grounds to overturn the Commissioner's ruling.